Credit card delinquencies among American consumers have shown a slight increase, with the average delinquency rate rising to 2.66% in July from 2.63% in June, according to a report by Seeking Alpha on August 16, 2024. Despite this uptick, the current rate remains lower than the 2.87% recorded in July of last year and 2.68% in July 2019, prior to the onset of the COVID-19 pandemic.
While delinquency rates have edged up, the average net charge-off rate—representing debts considered uncollectable—decreased from 3.80% in June to 3.63% in July. This figure is lower than the 4.09% seen in July 2023 but still above the pre-pandemic rate of 3.59% in July 2019. The report highlights that Bread Financial experienced notably high delinquency rates of 5.7% and 5.8% in June and July, respectively, alongside charge-offs of 7.8% to 7.6% during the same period. For the remaining six financial institutions monitored—American Express, Capital One, JPMorgan Chase, Bank of America, Synchrony, and Citigroup—delinquencies rose even as net charge-offs remained stable.
In the context of tightening credit access, financial institutions have begun raising criteria for new credit card applications, particularly impacting lower-income consumers. This shift comes despite evidence that subprime borrowers are 3.6 times more likely to express interest in obtaining a new credit card compared to individuals with the highest credit scores, as reported by PYMNTS last week.
Recent earnings reports from financial firms indicate that consumers, including those from subprime backgrounds, are managing their debt responsibilities. However, there are signs of increasing pressure due to persistent inflation and an uncertain macroeconomic environment. Richard Fairbank, CEO of Capital One, noted that while the U.S. consumer is generally in a favorable position, certain segments are experiencing challenges from cumulative inflation and rising interest rates. He also mentioned ongoing delayed charge-off effects stemming from the pandemic, although improving delinquency trends suggest these effects are beginning to moderate.
The credit industry is facing criticism over its approach to evaluating creditworthiness. Jason Tinurelli, Chief Marketing Officer of Concora Credit, argued that the current binary system—where consumers are either approved or denied credit—can alienate potential borrowers. He emphasized the need for more nuanced options for those with less-than-perfect credit, stating, “Customers can identify themselves before they walk in the door. What they really are looking for from you is some sort of hint that you have more options available for people with less-than-perfect credit.”
As the credit landscape continues to evolve, both consumers and financial institutions will need to navigate the complexities of credit access and debt management in a changing economic environment.